Can You Get A Mortgage Without A Deposit?
Among the many different mortgage products available in the UK, are mortgages that do not require a deposit. Before the financial crash of 2008, mortgages with very low deposits were more common but due to the resulting financial regulations, it became harder to get a mortgage. The tighter restrictions on who can get mortgages, plus the rising costs of living, have contributed to people renting for longer.
Research conducted found that a high deposit is one of the leading reasons renters cannot afford to buy a home. In this article, we’ll explore what deposits and mortgages are, and go into more detail about the no-deposit mortgage.
What are mortgages and deposits?
A mortgage is a loan specifically for borrowing money to buy real estate such as a home. A borrower usually pays a deposit upfront. The larger the deposit, the smaller the monthly repayments often are. Deposits are also a good way of demonstrating the borrower is financially responsible.
Deposits can range from 5% to 20% of the price of the property. In the UK, the average house price was £290,000 in January 2023 but that can vary. Some homes in Scotland are on sale are around £100,000 and in London you can expect to pay £569,49 on average for a flat.
What is a no deposit mortgage?
A no deposit mortgage, otherwise known as a Track Record Mortgage, is a new product that has only recently become available in 2023. The premise is based on the borrower’s track record of renting and paying bills on time. Therefore, eliminating the need for a deposit as proof of their financial situation.
This is different to a standard mortgage because the borrowing amount is subject to how much rent you are used to paying. The amount you can borrow for a mortgage is normally based on the income and outgoings of the borrowers and is also subject to the lender’s calculations. This means people can borrow more than four times thier income.
With a Track Record Mortgage however, the amount you are able to borrow will depend on what the monthly repayments are in comparison to your rent. You will not be able to pay a monthly mortgage that is more than you pay in rent currently. This might restrict the size or location of the house you are eligible to get a mortgage for.
The mortgage is also set as a 5-year fixed rate loan at 5.49% over a maximum period of 35 years which doesn’t allow for any flexibility. A need for flexibility is one of the reasons there are so many mortgage products available.
Who is eligible for a no deposit mortgage?
The no deposit mortgage is designed for people who are renting and are over 21 years old, looking to buy their first property. On top of this criteria, potential borrowers must be able to provide evidence of at least 12 months paying their rent on time and not falling behind on any bills. This is includes mobile phone bills and streaming subscriptions. The lender will make credit score checks and requires evidence as proof for eligibility.
Again, this is different from getting a normal mortgage as forgetting to pay your phone bill once in the last 12 months, is unlikely to affect your eligibility if you are able to pay a deposit. For renters who can’t pay the deposit, but keep up with their bills responsibly, this mortgage could make a huge and positive difference.
Is a no deposit mortgage right for me?
Considering that a deposit is often the main reason people cannot buy a property, this new mortgage sounds extremely promising. There are many parts to be cautious about before you decide if it is right for you however, as it will not be right for everyone.
You will need to meet the eligibility criteria for the mortgage and understand the risks associated with taking a mortgage loan on as a responsibility. At Grange Mortgages we’re experts in helping first-time buyers understand mortgage products so they can make informed decisions. Schedule a free call with us today and find out more.